Generating Vibrant Local Economies

There is a cafe I like to visit whenever I am near Villanova University, where I studied and taught for many years. A few years ago, someone staged an informal experiment, putting a stamp on a dollar bill to make it easily identifiable. Staff at this cafe reported receiving the bill in payment no less than 30 times in a 60-day period. That one dollar bill became $30 in gross domestic product (GDP). In this sense, the local economy of the cafe is a phenomenally efficient engine of economic productivity.

The bill stayed there partly because customers are loyal to that cafe and also because the cafe is a vibrant local business, with an atmosphere and a culture, and with ties to the community, that gives people reason to come again and again. It is relevant to their lives and provides value, so they spend there regularly. Those $30 of GDP help local businesses to hire workers, and the reliable recycling of that cash flow means they can keep paying them. This is how local economies take root, get stronger and more resilient, and create an atmosphere of thriving, over time.

Making sure a market solution generates local market activity is vital to making sure a policy meant to span the entire marketplace takes root, gets built into the wider economy, and allows for reliably productive outcomes. Abstracting value too far from local economies ensures that wealth and economic leverage become more distant, for most people, undermining the democratic wisdom of a diverse middle-class society made up of many vibrant community markets. When we look at how best to “use” the revenues that come from pricing carbon, there is a lot of talk about spending for value added, investments in alternatives energy sources, new subsidies, or tax breaks for businesses.

An effective market solution should make wealth and economic leverage available to the average household, so businesses will compete to become more efficient, to capture that wealth locally. We could call it the cafe cash register standard: Does the policy choice motivate behavior which will lead to dollars flowing through and around local business activity, not just once, but again and again? If not, then how will we finance the creation of that kind of underlying economic momentum and the job creation that flows from it? The resulting analysis is about generative value… how much ensuing economic vibrancy does a given dollar of investment, tax relief or revenue return generate?

We can actually build a more stable and resilient future by tracking the impact of any given dollar of investment on the underlying base of resources on which our thriving depends. Among energy choices, investment in solar is generative, because it adds to the total resource base, whereas investment in mined carbon-based fuels is degenerative, because it depletes the stock of available mined fuel. When we consider that the US economy is 70% driven by consumer spending, policies that motivate consumer spending at the micro scale, while not generating negative externalities, or corrosive impacts, are more generative and so lead to more resilient economic thriving over the long-term.

Capital abstracted from material concerns can flow into innovative practices, but pushing wealth into abstract investment markets without building real value at the human scale risks creating scenarios where our tools for assessing value are distorted and destabilized. A smart response to massive negative externalities needs to build value locally, because vibrant spending of locally deployed dollars is worth more in generative terms. The most efficient way to induce catalytic capital flows in the post-carbon economy is through reliably vibrant local cash flow. We could simply return the revenue directly to households and push added monthly income straight onto Main Street. Why? Everything gets easier, when we can afford what we do.